The Innovation Problem, Innovation Policy, and Inequality

The economics of innovation is normally connected with the economics of industrial and long-run growth, which is connected to economic policy via the Nelson-Arrow market-failure model (in which innovation is investment to create new knowledge as a public good). Innovation policy mechanisms – ranging from intellectual property, through R&D tax credits, targeted industry policy, and public funding of science – are evaluated from the welfare perspective of their contribution to economic growth, but without consideration to effects on inequality. This paper reviews the ‘new innovation economics’ of civil-society and commons-based approaches to the creation of new knowledge as a public good as compared to the standard suite of government-based solutions to the innovation problem. I present both theory and case-study-based evidence that innovation developed in the commons has a higher likelihood of reducing inequality in access to new technology.